Download this Paper Open PDF in Browser

Multinationals and the High Cash Holdings Puzzle

59 Pages Posted: 23 May 2012 Last revised: 21 Apr 2013

Lee Pinkowitz

Georgetown University - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Rohan Williamson

Georgetown University - McDonough School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 21, 2012

Abstract

Defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, we find that the abnormal cash holdings of U.S. firms after the crisis represent on average 1.86% of assets. While U.S. firms held less cash than comparable foreign firms in the late 1990s, by 2010 they hold more. However, only U.S. multinational firms experience an increase in abnormal cash holdings during the 2000s. U.S. multinational firms had cash holdings similar to those of purely domestic firms in the late 1990s, but they hold over 3% more assets in cash than comparable purely domestic firms after the crisis. Further, U.S. multinationals increased their cash holdings since the late 1990s relative to foreign multinationals by roughly the same percentage as they increased their cash holdings relative to U.S. domestic firms. A detailed analysis shows that the increase in cash holdings of multinational firms cannot be explained by the tax treatment of profit repatriations, that it is intrinsically linked to their R&D intensity, and that firms that become multinational do not increase their abnormal cash holdings after they become multinational. There is no evidence that poor investment opportunities, regulation, or poor governance can explain the abnormal cash holdings of U.S. firms after the crisis.

Keywords: Cash holdings, multinational corporations, financial crisis, research and development

JEL Classification: G32, F23

Suggested Citation

Pinkowitz, Lee and Stulz, René M. and Williamson, Rohan, Multinationals and the High Cash Holdings Puzzle (May 21, 2012). Charles A. Dice Center Working Paper No. 2012-10; ECGI - Finance Working Paper No. 334/2012; Georgetown McDonough School of Business Research Paper No. 2012-13. Available at SSRN: https://ssrn.com/abstract=2064046

Lee Foster Pinkowitz

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2689 (Phone)
202-687-4031 (Fax)

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

Paper statistics

Downloads
840
Rank
21,250
Abstract Views
3,736